A specialist trap is a specific trading pattern legendary trader Larry Williams has used since 1966 in stocks and commodities. I follow this strategy for almost 10 years. It is one of my favorite patterns I still use on managed accounts.
How does the specialist trap pattern work?
In the case of a buy, I want to look for a market that has been in a strong downtrend, that moves sideways for 6 or 20 days. What’s happening is it looks like the downtrend may be over, that the market is in the process of bottoming out. I then wait for a break to new lows, a close below the trading range. As I see it, this scares the public out of the longs they have recently acquired…the break out usually means they went short…and may be caught in a trap. The trap takes place if, within 3 days of the new low close, the price rallies back to the high of the day prior to the new low close.
For a sell, look for a strong up-trending market, that goes into a sideways trading range or “box” for 6 to 20 days, then thrusts up on a big breakout day. It may go on, or it may not. Our sell will be at the true low of the day before the break out day. As you see it is a very easy trading strategy.
Buy Entry Review
What should have happened, what usually does, is price keeps going lower. But, if the price can immediately rally back to the high of the day prior to the break a buy signal is given.
Sell Entry Review
The sell pattern is just the reverse. Again, I look for a large uptrend, then a sideways market, resolving itself with a new high closing price. The new close sets the trap. If the price immediately collapses, I define that as getting back to the low of the day prior to the break out, a sell signal is issued.
Traders will see this pattern on weekly, daily, and intraday charts. It is one Larry Williams has used since 1969 and found to be one of the very few effective “chart patterns.” I think that it is more than just a pattern; what it reflects is the state of mind of traders.
Specialist trap. Trading pattern explained by Inna Rosputnia
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